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Enforcing Contracts

The enforcing contracts indicator measures the time and cost for resolving a commercial dispute through a local first-instance court, and the quality of judicial processes index, evaluating whether each economy has adopted a series of good practices that promote quality and efficiency in the court system. The most recent round of data collection was completed in June 2017.See the methodology for more information.

Why it Matters

Efficient contract enforcement is essential to economic development and sustained growth (1). Economic and social progress cannot be achieved without respect for the rule of law and effective protection of rights, both of which require a well-functioning judiciary that resolves cases in a reasonable time and is predictable and accessible to the public (2). Economies with a more efficient judiciary, in which courts can effectively enforce contractual obligations, have more developed credit markets and a higher level of development overall (3). A stronger judiciary is also associated with more rapid growth of small firms (4). Overall, enhancing the efficiency of the judicial system can improve the business climate, foster innovation, attract foreign direct investment and secure tax revenues (5).

A study examining court efficiency in different provinces in Argentina and Brazil found that firms located in provinces with more effective courts have greater access to credit (6). Another study, focusing on Mexico, found that states with better court systems have larger and more efficient firms (7). Effective courts reduce the risks faced by firms and increase their willingness to invest (8). Firms in Brazil, Peru and the Philippines report that they would be willing to invest more if they had greater confidence in the courts (9).

Where legal institutions are ineffective, improvements in the law may have limited impact. A study of the transitioning economies of Eastern Europe and the former Soviet Union between 1992 and 1998 found that reforms in corporate and bankruptcy laws had little effect on the development of their financial institutions. Improvements began only once their legal institutions became more efficient (10).

The efficiency of courts continues to vary greatly around the world. Enforcing a contract through the courts can take less than 10 months in Singapore, New Zealand and Rwanda but almost 4 years in Bangladesh and India. And the cost of doing so ranges from less than 10% of the value of the claim in Iceland, Luxembourg and Norway to more than 80% in economies such as Burkina Faso and Zimbabwe. In 4 economies, including Cambodia and Mozambique, the cost of resolving the standardized dispute through local courts exceeds the value in dispute, indicating that litigation may not be worth it at all.